In March 2012, United Parcel Service (NYSE:UPS) announced its acquisition of Netherlands-based TNT Express (NYSE Euronext:TNTE) for EUR 5.16 billion ($6.77* billion).  The acquisition is currently under review with UPS recently announcing an extension for TNT shareholders to approve the deal given that the company has not received clearance from the EU regulators. The transaction, when complete, will make UPS the global leader in logistics business with revenues exceeding $60 billion.
Significant benefits accrue from the transaction for both UPS and TNT Express. For UPS, the acquisition will bring broader reach, particularly in Europe through TNT’s road freight network and other express delivery capabilities. It will also accelerate UPS’ international growth and bring savings in the form of cost synergies to its European operations. For TNT Express, its stakeholders will benefit from the global scale of UPS and its current employees will have better career opportunities.
On the whole, the transaction creates significant value for the current shareholders of UPS. We currently have a stock price estimate of $85 for UPS, approximately 10% above its current market price.
At present, TNT Express delivers nearly 1 million consignments, ranging from documents and parcels to palletized freight, daily. It operates road and air transport networks in Europe, the Middle East, Asia Pacific and the Americas comprising 30,000 road vehicles and 46 aircraft. The company generated revenues of EUR 7.25 billion ($9.51* billion) and non-GAAP operating income of EUR 225 million in 2011. 
Benefits from the acquisition for UPS
The acquisition will bring several benefits to UPS. First, it will expand the geographical reach through the networks of TNT Express. In particular, TNT’s road freight network will significantly increase the delivery capabilities of UPS in the European mainland. Second, the company’s international growth will accelerate benefiting from a larger market share in the fast-growing regions of Asia Pacific and Latin America. The combined entity will generate 36% revenues from outside of the U.S., up from 26% that UPS currently generates. Third, it will result in cost synergies, which UPS currently estimates to range between EUR 400 and EUR 550 million ($525* and $725* million) per year by the end of the fourth year of transaction completion. The costs related to the integration of TNT with UPS in order to extract these synergies are estimated at EUR 1 billion ($1.31* billion) over the four-year integration process.
In addition, the acquisition is a culture-fit as both the companies have strong corporate governance procedures with a strong focus on performance.
The TNT Express board endorses the deal
The board of TNT Express has unanimously supported the acquisition offer as its stakeholders will benefit from the global scale of UPS. The offer price of EUR 9.50 per ordinary share of TNT is at a premium of 53.7% on its share price of EUR 6.18, which it was prior to the announcement of the acquisition. The combined entity will also offer enhanced career opportunities to TNT Express employees.
All in all, the acquisition brings significant value to UPS shareholders as it not only increases the company’s market share but also enhances its service offerings.
* Assuming foreign exchange spot rate of EUR/USD 1.3116, as on March 16, 2012, when the offer was announced (Source:ECB)Notes:
- United Parcel Service and TNT Express to Create a Global Leader in the Logistics Industry, March 19 2012, www.ups.com [↩]
- TNT Express Annual Report 2011, www.tnt.com [↩]